Bitcoin has been around for nearly a decade, and yet, it is still a mystery to many people how it works. After listening to several experts speak about the nature of Bitcoin, I noticed that in order to understand it, you need to deprogram how you think about money.
The Different Functions of Currency
Depending on who you ask, money has several definitions and functions.
- Money is an efficient medium of exchange that avoids the need for bartering
- A store of value that holds wealth for long periods of time
- A unit of measurement
One can argue that money has become a system of control, but that is not the point of this article, rather, it is to show how money is a form of content that instrumental for societies to function.
How We Live in an Ocean of Content
Content is an outside force in which you can interact and absorb information from. This definition extends to anything that can make you reflect on yourself including but not limited to media, people, and substances. The way I view the world is that we are surrounded by content the same way fish are surrounded by water, and when people share commonalities among content, that is how culture forms. From reading your Facebook feed to uploading a Snapchat story, there are plenty of simple ways of posting and absorbing content. Another form of content that is a level more complex is having a debate with someone about ideas; you are simultaneously exchanging information with an “other.” One of the most powerful forms of absorbing content is through drugs and alcohol. The reason why I call drugs a form of content because of the way the chemical composition of them drugs interact your brain. There are uppers, downers, psychedelics, and everything in between that temporarily but drastically changes your perception, and consistent use can have an effect on who you are. It is not a coincidence that drugs are the most regulated forms of content by governments. Who knows what the world would look like with unfiltered access to them? Similar to how fish do not question what water is, people do not question what content is either because we are engulfed by it.
Money is a form of undefined content; By being accepted is the foundational medium of exchange by society, money is reserved potential that can become anything you choose it to be. Spending money to attend a concert is using that potential reserve into a memorable experience or buying drinks at a bar with the intent of getting drunk is transferring your funds in order to change your state of mind. There is something about money, and its ability to become anything makes people’s imaginations launch into the stratosphere. Especially true in American culture, money has been elevated to a holy status. Money is a major theme in the vast majority music we listen to and entertainment we consume. Americans are chasing dollars due to it being the ultimate sign of success in the United States’s capitalist system, but rarely ask where money gets its value in the first place.
Why the Dollar has Value
In the international monetary system, the US Dollar holds a special place among the world’s currencies because it acts as the world reserve currency, meaning that governments are required to hold some of it in order to participate in global finance. The dollar used to be backed by gold, but since Nixon decided to leave the gold standard in 1971 in favor of a fiat system, the only thing that has been backing the dollar is the sheer size of the US Economy and the faith that the US Government can pay back its debts.
Dollars come into existence through the policies of the Federal Reserve System. The Federal Reserve is the Central Bank of the United States and is sanctioned to issue currency and set monetary policy. The Federal Reserve lends money to banks like Goldman Sachs and JP Morgan who then lend it to business. Quite simply, the Federal Reserve is the bank’s bank; they are the gatekeepers of what I like to call the faucet that floods our world with undefined content.
Bitcoin differs from the Federal Reserve and other central banks because the faucet of creation is not controlled by a centralized group of bankers but a decentralized network of computers solving complex problems. What gives Bitcoin its value is that it possesses all three essential traits to be classified as currency. The blockchain technology seamlessly keeps track of every transaction to ensure accuracy, wallets serve as one’s own bank account that is free from government scrutiny, and Bitcoin is becoming widely accepted among merchants, most notably Expedia and Overstock. Every ten minutes, you can be sure that a new Bitcoin block will be mined and added to the chain.
Just as the internet decentralized publishing allowing anyone to share their work to the world, Bitcoin and cryptocurrency will do the same with banking. There is something powerful about decentralizing the faucet of the uncertain potential of money because it will shift the world monetary system from being fiat-based to crypto-based. That is not to say that fiat money will just disappear, but rather that Bitcoin will play a much more substantial role in the global economy.